Valerie Cerra

Alternative Methods of Estimating Potential Output and the Output Gap; An Application to Sweden

This paper reviews a number of different methods that can be used to estimate potential output and the output gap. Measures of potential output and the output gap are useful to help identify the scope for sustainable noninflationary growth and to allow an assessment of the stance of macroeconomic policies. The paper then compares results from some of these methods to the case of Sweden, showing the range of estimates.

Did Output Recover from the Asian Crisis

This paper investigates the extent to which output has recovered from the Asian crisis. A regime-switching approach that introduces two state variables is used to decompose recessions in a set of six Asian countries into permanent and transitory components. While growth recovered fairly quickly after the crisis, there is evidence of permanent losses in the levels of output in all the countries studied.

What Caused the 1991 Currency Crisis in India

Did real overvaluation contribute to the 1991 currency crisis in India? This paper seeks an answer by constructing the equilibrium real exchange rate, using an error correction model and a technique developed by Gonzalo and Granger (1995). The results are affirmative and the evidence indicates that current account deficits and investor confidence also played significant roles in the sharp exchange rate depreciation. The ECM model is supported by superior out-of-sample forecast performance versus a random walk model.

International Evidence on Recovery from Recessions

Although negative shocks have persistent effects on output on average, this paper shows that macroeconomic policies and the structure of the economy can influence the speed of recovery and mitigate the persistence of the shock. Indeed, monetary and fiscal stimulus and foreign aid can spur a rebound, with impacts that are asymmetrically stronger than in nonrecovery years. Real depreciation and the exchange rate regime also have asymmetric growth effects in a recovery year relative to other years of expansion. Recoveries are more sluggish in open economies, partly because fiscal policy is less effective than in closed economies.

Robbing the Riches; Capital Flight, Institutions, and Instability

Capital flight may undermine economic growth and the effectiveness of debt relief and foreign aid. This paper is the first attempt to test whether unsound macroeconomic policies or weak institutions lead to capital flight, using panel data for a large set of developing, emerging market and transition countries. In addition, the paper tests the revolving door hypothesis that links debt accumulation and capital flight, and analyzes the contribution of institutions to several channels in this relationship.

Robbing the Riches: Capital Flight, Institutions and Debt

Abstract Capital flight undermines economic growth and the effectiveness of debt relief and foreign aid, and sometimes drains more resources from poor countries than does debt service. In an analysis of a large panel of developing and emerging market countries using annual data for 1970–2001, we show that both institutions and macro policies robustly affect capital flight. Our study also supports the existence of a revolving door relationship between debt and capital flight. More notably we find countries with weak institutions have a greater propensity to accumulate debt because weak institutions spur capital flight, which, in turn, creates a financing need.

How Competitive is Irish Manufacturing

Ireland experienced significant competitiveness gains in the 1990s on the basis of the standard manufacturing unit labour cost-based measure of the real effective exchange rate. A few sectors mostly dominated by multinational companies have accounted for the bulk of value added in production. Their productivity gains have greatly contributed to Ireland’s exceptional growth performance in the 1990s, which has earned it the nickname of “Celtic Tiger.” However, these sectors represent a disproportionately smaller share of manufacturing employment, and competitiveness in employment-intensive sectors has been much weaker. This paper thus explores Irish competitiveness from the viewpoint of risks to employment.

China's Trade Flows; Changing Price Sensitivies and the Reform Process

Over the past 20 years, the Chinese authorities have undertaken wide-ranging reforms of their exchange and trade systems that have steadily reduced the role of planning and increased the importance of market forces. As these reforms have taken root, relative prices and domestic and foreign demand would be expected to have played a bigger role in determining trade flows. Econometric estimates of export and import equations provide evidence that trade flows have indeed become increasingly price sensitive, owing to the gradual liberalization of the trade regime over time, and to the growing shares of foreign-funded enterprises and manufactures in total trade.

Crouching Tiger, Hidden Dragon: What are the Consequences of China's WTO Entry for India's trade?

One of the most significant recent developments in world trade has been the entry of China into the World Trade Organization (WTO). This paper examines the implications of China’s WTO accession for India’s trade, using both econometrics and computable general equilibrium (CGE) models. The paper analyzes how India stands to lose or gain from China’s WTO entry in terms of both the direct and competitive channels.

An Empirical Analysis of China's Export Behavior

This paper studies the behavior of Chinas exports from the mid-1980s through 2001. Extensive quarterly data on values and quantities of major export products have been taken from Chinese custom statistics to form a panel data set. The data are used to estimate export supply price elasticities, including by industry groups. The extensive product level data permits the use of panel estimation techniques in order to increase the power of testing methodology. Aggregate quarterly export unit price indices are also constructed and thereby provide an input to future research on Chinas trade.